TFP during a Credit Crunch

Nicolas Petrosky-Nadeau

No 2010-E70, GSIA Working Papers from Carnegie Mellon University, Tepper School of Business

Abstract: The financial crisis of 2008 was followed by sharp contractions in aggregate output and employment and an unusual increase in aggregate total factor productivity (TFP). This paper attempts to explain these facts by modeling the creation and destruction of jobs in the presence of heterogeneity in firm productivity and frictional credit and labor markets. The aggregate level of TFP is determined by both the underlying distribution of firm productivity and the structures of the credit and labor markets. Adverse shocks to credit markets destroy the least productive jobs and slow job creation, thus raising aggregate TFP and unemployment, and reducing output.

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Journal Article: TFP during a credit crunch (2013)
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